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Nightly Business Report

News/Business. (2010) A review of the economy and markets at mid-year. New. (CC) (Stereo)

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U.s. 18, Josh Feinman 3, Us 3, Anna Olson 2, Suzanne Pratt 2, Tim Evans 2, Tom Hudson 2, Jim Awad 2, Diane Eastabrook 2, Citi 2, Opec 2, Obama Administration 2, S&p 2, Gordon 2, Tim 2, Greece 2, America 2, Europe 1, Mexico 1, Kidnsips 1,
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  WETA    Nightly Business Report    News/Business.  (2010) A review of the  
   economy and markets at mid-year. New. (CC) (Stereo)  

    July 5, 2010
    6:30 - 7:00pm EDT  

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>> right now, profits aren't there to justify taking on the expense and the risk of another store. >> susie: the economy-- was it recovering or heading back into recession? during the year's first half, it was often hard to tell. that uncertainty paved the way for a bumpy ride on wall street and fears over europe's finances "greeced" the way for a spring slide in stock prices. >> susie: so where will things go from here? stay tuned, as we try to find out in: "the economy and the markets at mid-year." this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
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this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> susie: good evening, everyone. the u.s. financial markets were closed to mark independence day. so tonight we'll take a break from our usual reporting to take a look at the state of the economy and the markets at the year's half-way point. >> tom: susie, it's often said that the financial markets hate uncertainty and over the past six months, there was plenty of uncertainty about where the economy was headed. there was even some talk about the possibility of a double-dip recession. >> susie: and as midwest bureau chief diane eastabrook reports, the lack of clear economic
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signals made it hard for many businesses to plan ahead: >> reporter: kidsnips gives a lot of haircuts. it's a business that operates nine hair styling salons in the chicago area, catering mostly to children. but last year, kidsnips took a haircut itself-- a financial one that is. when the u.s. economy blew up, kidnsips' business did, too. owners kim stolz and jill gordon say cash-strapped customers got fewer haircuts. they bought even fewer of the toys and games kidsnips also sells. this year business is bouncing back, but not enough to encourage kidsnips to open more salons and hire more stylists. >> we've actually had a couple of nice opportunities that we felt we shouldn't say yes to at this time. we'll revisit them i hope in another year or so, but right now profits aren't there to justify taking on the expense and the risk of another store. >> reporter: gordon's apprehension is rooted in the mixed messages the u.s. economy has been sending. take employment.
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in march the u.s. began adding jobs--roughly 200,000 that month. but, most of those were temporary government census jobs. in april, even more jobs were created. this time most were in the private sector. but in may, hiring was again mostly confined to the government. mesirow financial's chief economist diane swonk says she's troubled by the weakness in private sector hiring. >> even as we generate jobs, we don't generate enough jobs to accommodate those people who are newly graduating into the work force, but also deal with what is going to be a much older labor force when people can't afford to retire. >> reporter: consumers have sent their own mixed messages. since the beginning of the year consumer confidence has been improving. and in early spring everything from retail sales to home purchases seemed to be looking up, too. but in may, statistics told a different story. auto sales for that month continued to soar, both retail sales and housing starts fell. robert johnson is the associate director of economic analysis at morningstar. he thinks the mixed messages are
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typical of an economy that's emerging from a very deep recession. >> ideally, we'd like to see every signal going up at the same time, but generally things go in fits and starts and we saw this at the beginning of the recovery, too, and now at mid stage we're seeing some pauses in different parts of our cycles. >> reporter: still johnson admits the u.s. economy is fragile. he worries that increases in interest rates or taxes could derail the recovery. >> if we decide to massively raise taxes certainly that is going to impede the economy. we barely have enough money to spend today to raise taxes more at this point in time it's probably just a bit dangerous. and i think there is some contemplation that taxes on investment might be going up. >> reporter: at kidsnips, gordon is carefully tracking haircuts and toy sales looking for more signs of an upturn. in the meantime, she says she's being careful and she thinks other businesses are, too. >> my sense is that it is a cautious recovery right now. people aren't feeling bullet proof. they are approaching extra
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spending in baby steps and that there is not a roaring optimism. there's a lot of pain out there still. >> reporter: diane eastabrook "nightly business report" wilmette, illinois. >> susie: so how will the economy do over the next six months? to answer that we turned to josh feinman, the chief economist at deutsche asset management and james awad, investment strategist at zephyr management. i began by asking josh for his forecast. >> i think the economy is recovering. i think it's going to continue to recover. i'm looking for 2.5-3.0% growth, not bad, better than during the recession but nowhere near the 5-7% growth that we saw after past deep recessions and the reason is we still have headwinds from the bursting of the housing and credit bubble. >> reporter: people are talking about recession, or growth is recovery. which is it? >> if you will have recession it's next year not this year,
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you have the tailwinds of the stimulus, easy money, i would agree with josh's assessment for the next six months. >> reporter: a big question on everyone's mind is will companies be hiring in a big way over the next couple months? do you see that happening? where is the unemployment rate going to be? >> i think they'll be hiring but not in a big way, employment will continue to increase but modestly and i think at a rate that will probably push the unemployment rate down, maybe at best 9.5%. >> reporter: where we are now. jim, this is not from the consumer. thaernt in position to spend. >> it's exports to selective emerging markets. company after company when they report earnings they say the strong growth is exports to emerging markets. that's the bright spot. >> i agree with that but one problem is exports to europe will be on the sluggish side, europe's economy we see is going to be weaker. >> susie: the other question people want to know is what is
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my house going to be worth? do you see that the housing market is going to get better over the coming months? >> i think the house is not going to be worth as much as it was a few years ago but the worst is behind us, i see bouncing along the bottom. there is still overhang. >> susie: jim, is this still going to be a buyer's market? >> absolutely, with tepid employment growth, it's going to remain a buyer's market for some time to come. >> susie: let's take a break. we'll be back in a few minutes with more of your stocks. >> tom: one thing that the stock market doesn't like is uncertainty. so it's no wonder that the conflicting economic data led to a jittery first half on wall street. suzanne pratt reports that the overall numbers masked some considerable volatility: >> reporter: if, like sleeping beauty, you slept through the first six months of the year, but then woke up, you might conclude it was a quite period for the stock market. as of the end of june, the dow, s&p 500 and the nasdaq posted single digit losses from their
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levels of early january. but, a closer look at this dow chart tells a very different tale about what happened to equities over the past six months. solaris chief investment officer tim ghriskey says two words describe trading during the period. >> wild and wooley. it was really a pretty wild first half. a lot of volatility. a spike in the vix index, which measures the volatility of stocks, how much their trading and the price moves. >> tom: stocks began 2010 coming off a 20% gain in 2009. but, the new year's cheer continued only for a short time. investors soon were fretting about chinese economic policy and at home, the possibility of tighter restrictions on u.s. banks. as a result, the dow suffered steep drops in january and february, closing below 10,000 on february 8. however, u.s. equities soon
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bounced back. the blue-chip index surged more than a thousand points from february to late april, underpinned by a recovering economy and corporate profits. bank of america strategist david bianco says many u.s. firms took wall street by surprise, turning in better-than expected earnings. >> what sticks out the most for the first half of the year is how strong the earnings recovery has been and how strong the manufacturing part of the global economy's recovery has been. this has been very good for stocks, much better than most people have thought. s&p has doubled it earnings from first quarter 2009, that's a big surprise. >> reporter: but just as investors were dipping their toes back into stocks, they were spooked by the flash crash on may 6. the dow cratered nearly 1,000 points in a matter of only to recover more than half of the drop by the close. it's still unclear what
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triggered the short-lived selloff, but experts say the event put a huge dent in investor confidence. >> the individual investor has to wonder if the game is somewhat stacked against them and especially when the system breaks down like the flash crash and it destroys confidence. >> reporter: following the flash carsh, growing problems with europe's sovereign debt made u.s. investors even more nervous. although it wasn't alone, experts say one eurozone country in particular stood out for its poorly managed finances. >> greece-- greece and southern europe and the fear that europe was about to fall into a sudden recession. i think investors feared that as quickly as things went from satisfactory to steep recession in the u.s. in 2008, a lot of investors feared that would happen to europe. >> reporter: those fears continued to dog stocks in may and june. as did a big drop in the euro's value. and now, investors are worrying once again about the u.s.
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economy. those fears are leading many market pros to be cautious in their predictions for stocks in the second half. suzanne pratt, nightly business report, new york >> susie: will investors continue to be cautious between now and the end of the year? picking up again with josh feinman and jim awad-- jim kicked off our discussion the dow will be unchanged for the year. >> the reason it shouldn't go down is because the economy is still doing fine and profits are growing so that should support stock prices, but there are a lot of uncertainties about 2011 with austerity kicking in, consumers paying down debt and housing prices. that will prevent the market from going up. the positives will cope it from going down and the uncertainties will keep it from going up. >> susie: are we in a bear market? >> yes, a secular bear market but it doesn't mean it has to go down from here, it just means it may not make progress for the next several years. >> susie: the financial problems
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in europe. do you see the situation getting better in the coming months? >> i think economically europe is going to continue to struggle. they have fiscal austerity they have to deal with but i think the worst fears, things like the dissolution of the monetary union, that type of thing is likely to dissipate, i think the package they put in place a couple of months ago is helpful. >> susie: jim, second quarter earnings coming out the next couple of weeks. are the numbers going to be good news or bad news for stocks? >> the absolute numbers are going to be good. the question is how are they relative to expectations and what are companies going to say about business in the second half of the year? and i think that the news is going to be mixed and that the result will not force stock prices either up or down. >> susie: let's move from stock prices to bond prices. josh, investors are counting on that interest rates are not going to be going up anytime soon. that's the message that appears to be from the fed. are we hearing the fed right? >> yes, i think so, certainly over the second half of this year, possibly well into next year as well, until the fed is really much more confident in the viability and durability of
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the recovery, the labor market kicking in a lot more, fed is not going to be itching to raise interest rates especially with inflation so low. >> susie: should investors be putting some money into bonds with these super-low yields? >> corporate bonds, three, four, five-year corporate bonds you can get a lot more than treasuries and while the interest rates are subdued relative to inflation, they're respectable. >> susie: here is another area. gold. you said not inflation in the outlook. so is gold a good place to put money? >> i'm not sure. certainly not as an inflation hedge over the near to medium term, maybe some sort of worries about sovereign risk or something like that but gold's run a long way. i'm not sure i fully understand. >> jim, what do you think? is the ride going to continue? >> in the short-term, yes, gold is a secular ball market, the money is in the eastern part of the world and they view gold as a store of value. >> susie: let's take another break and we'll be back in a few minutes.
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>> tom: capitol hill has been on the minds of investors a lot this year, as the obama administration pushed major legislative initiatives on health care and financial regulatory reform. as anna olson reports, the controversy over both of those issues is far from over. >> reporter: back in january, president obama faced two seemingly intractable issues: health care and financial regulatory reform. although changing the health care system was his top domestic priority, the legislation had been stalled in congress for months. but the president pressed on. he called the need to extend health insurance to another 23 million americans a moral obligation. >> i don't know how this plays politically, but i know it's right. and so i ask congress to finish its work and i look forward to signing this reform into law. >> reporter: but he still had some major roadblocks. republicans remained opposed to the legislation, and even some democrats were on the fence. polls showed many americans also had reservations about it. >> so this is really not an
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argument between democrats and republicans. this is an argument between democrats and the american people. >> reporter: to avoid a possible filibuster, a tactic known as reconciliation was used and the house passed the senate's health care bill with few changes. the president then signed the landmark legislation into law on march 23rd. but the new law immediately came under fire. the attorneys general of 20 states challenged the law as unconstitutional. that lawsuit is now before the courts. meanwhile, small business owners worried about the price they'd pay for reform. bill rys of the national federation of independent business said employers would be forced to buy more expensive insurance plans. >> you're going to have to meet a certain level of coverage, a level of coverage that a lot of small business owners don't currently meet. so in a lot of cases, they are going to have to buy up. they are going to have to buy a more expensive insurance plan to be able to qualify for a plan that's adequate under the new government rules. >> reporter: president obama then turned his attention to reforming the financial system.
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this time, he presented congress with his own plan, saying it was needed to prevent another economic meltdown. after months of wrangling, lawmakers came to agreement on the most sweeping set of financial regulations since the great depression. among the planned reforms: a new consumer financial protection bureau-- chris krueger, an analyst at concept capital, says its powers will extend far and wide. >> what the c.f.p.b. is basically going to be is a financial e.p.a. this is going to be an incredibly broad, incredibly far reaching agency that will have authority to regulate and oversee the financial services markets and the financial services industry in america and that's unprecedented. >> reporter: other provisions are slated to give regulators the power to break up large failing firms, to monitor risks to the financial system, and to set new rules for trading in risky financial instruments. but some progressives say lobbyists for the financial industry kept the legislation from going far enough and
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conservatives-- who consider the bill too tough-- are threatening to block it with a filibuster. anna olson, "nightly business report," washington. >> tom: the obama administration is still working on getting an energy bill passed, and the president says he's confident that will happen this year. after the catastrophic spill that followed the explosion aboard the deepwater horizon on april 20, the president ordered a six-month moratorium on new deep water drilling in the gulf of mexico. although a judge later ruled against that action, there are questions as to what the spill will mean for the longer-range energy picture. here to discuss that with us-- and the energy outlook in the year's second half-- is tim evans, energy futures analyst at citi futures perspective. welcome to nightly business report. >> thanks for having me on the
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show. >> trading between 70 side to 90 on the high side. does it stay in that range the rest of the year? >> i think we could see a downside test. we still have inventories running 3-4% higher than a year ago. demand has picked up but it's still running about 6.5% below the 2007 peak levels in the u.s., so there may be some downside vulnerability over the next month or two, but overall, i think we are looking at a range trading scenario. >> tom: you don't see necessarily triple digits for a barrel of oil by year's end, do you? >> well, no, i don't, and i think there are some pretty good reasons why. when we do encounter a recession and a downturn in demand, we often come out of that recession with elevated inventories and spare capacity. it's true of crude oil as it is for a number of commodities, and opec, for example, now has more than five million barrels a day
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of spare capacity, so we're going to have to work that off over an extended period of time before we really have a case for $100 oil. >> tom: what's going on, then, in the oil markets here at the halfway mark this year? you mentioned global production is higher. demand has been a bit slower to pick up. why haven't prices come down more? >> well, i think we have a speculative element in the market. we have a lot of oil traders who are betting on the economic recovery story. that's certainly been a support for the market overall over the first half of the year. we also are basically viewing opec production policy as a support for the market, and they did cut back production at the beginning of 2009. that also cushioned our downside here, but we really don't have that much support for the market in terms of physical tightness
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here. >> tom: what about that -- the b.p. oil leak? have you been surprised that it hasn't impacted prices either on the up side or the down side more? >> well, yes, i think so. to some extent, the visuals on the oil leak were dramatic. they were certainly -- looked like a supply disruption, but the market took that in stride and actually moved lower in the weeks following the spill, largely because we recognized that this was not lost production, this was future production that was really being affected. >> tom: real quick, tim, a half minute left, i want to talk about gasoline prices real quick. those prices are about a dime per gallon higher this summer compared to a year ago. is it the seasonal forecast you're sticking to for the rest of the year? any anomalies? >> well, i think the gasoline
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price may be a little high given that inventories are running more than 3% higher than at this point last year. we also have some doubts about consumer confidence and what kind of a driving season we're actually going to see here. the upside risk on gasoline prices is that we also have a forecast for an active hurricane season, and we saw, back in 2005, that hurricanes can disrupt refining operations along the gulf coast, so if we lose some refining capacity, that could set us up for a gasoline price spike late in the summer. >> tim, we appreciate the look in the crystal ball to the second half of 2010. our guest tonight is tim evans of citi futures perspective. >> susie: the november elections and rising deficits. and rising deficits will be debated over the next six months from corporate boardrooms, to trading desks and in living rooms of american voters.
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as i wrapped up my conversation with josh feinman and jim awad. i asked josh how those mid-term elections could impact businesses and the economy. >> the key question is what magnitude of inroads the republicans make in the congressional elections. do they retake the house of representatives. i think they've got an even shot of doing so, and if they do, then you're talking about an obama administration moving forward that's going to have to compromise a lot more. >> susie: jim, do you see it like that? what's the market reaction? >> i see it exactly like that and the market likes that, i think they view the republicans as a negotiating partner with obama as the best way to get there, and so i agree completely with josh's assessment. >> susie: josh, big deficits are a worry, and with a lot of pressure from the u.s. to do something to reduce them. do you see any momentum to reduce them in the coming months? >> i do. we just saw the g-20 summit and they came out with agreements to try and bring down deficits. i think no question over the medium to long-term the u.s. and others are on an unsustainable
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budget path and something has to be done. the worry i have is when you do too much, too soon, when the recovery is so fragile you risk tipping the economy back into a downturn. you have to walk a fine line. you need deficit reduction eventually but not too quickly. >> susie: jim, you think there are risks if we don't do bg something about those deficits. >> what i worry about is that the europeans are are already on course and they're doing it. if they have credible deficit reduction and we don't, i worry about investors taking the u.s. dollar down which would take interest rates up to defend it and would hurt the u.s. economy, so i think we do have to have a competitive budget reduction program to compete with what the europeans are doing. >> susie: josh, what happens with the dollar? how is it going to stack up against the euro? >> i think probably moving sideways over the near term. i think the worst of the fears about europe imploding are dissipating. that was putting a lot of downward pressure on the euro. i think that's going to stop. but i don't see the dollar moving dramatically higher or lower. >> susie: so for businesses, jim, is that good or bad? >> i think that they're
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satisfied with the dollar where it is. the one thing on the wish list of u.s. corporate executives is that the chinese currency would go up materially from where it is. that would make our exports there more competitive price basis and would lift the u.s. growth rate somewhat, and attractively. >> susie: both of you are of the view that this second half is going to be kind of slow and the economy is going to be sluggish. what would have to change for both of you to feel that the economy is stronger and better? josh, you first. >> some of the headwinds thar holding us back i think would have to diminish. households would have to feel that they had completed the process of balance-sheet repair, the credit restraint would have to diminish further and most importantly the labor market would have to kick into much higher >> the one thing that would get us there quicker is if the markets turn out to be stronger than we thought and create enough demand to lifkt our growth rate along with it.
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>> susie: jim, josh, thanks you so much and happy fourth of july. >> tom: to learn more about the subjects covered in tonight's broadcast, to watch our streaming video and to take part in our daily blog, go to "nightly business report" on pbs.org. you can also email us at nbr@pbs.org. that's it for "nightly business report" for monday, july 5. i'm tom hudson. goodnight, everyone and you too, susie. >> susie: good night tom. i'm susie gharib goodnight, everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you.
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